Case 61: Blockchain Can Streamline The Energy Retail Market
Igor Nai Fovino and Jean-Pierre Nordvik, Joint Research Centre, European Commission
The European Commission Energy Union Framework Strategy sets out the vision of an ‘Energy Union’ “with citizens at its core, where citizens take ownership of the energy transition, benefit from new technologies to reduce their bills, participate actively in the market, and where vulnerable consumers are protected”. However, while the development of energy smart-grids is progressing steadily, the retail energy market is still waiting for modernisation. The Commission’s policy initiative ‘New Energy Market Design’ will have to face several crucial points:
• how to deliver appropriate information on costs and consumption to consumers so that they can identify new opportunities in a fully integrated continental energy market
• how to reward for active participation, facilitate switching of contracts and manage demandresponse to dynamic prices
• how to ensure interoperability in the market for residential energy services, expanding consumers’ choices, and enable a real gain from self-generation and self-consumption, and local micro-generation. In this context, distributed ledgers can act as a new driver to enhance the level of integration and development of the energy retail market. The Joint Research Centre of the European Commission is currently investigating their practical applications, such as the following cases.
1. Micro-Generation energy market.
Microgeneration is the capacity for consumers to produce energy in-house or in a local community. The concept of ‘market’ indicates the possibility of trading energy that has been micro-generated among consumers and ‘prosumers’. Traditionally, however, this market has been served by predefined bilateral agreements between prosumers and retail energy suppliers. Until now, electricitygenerating prosumers have not had real access to the energy market, which remains a privileged playing field for the institutionalised energy suppliers. This has greatly limited the economic advantages of micro-generation for endusers. Distributed ledgers, in combination with smart-metering systems and next-generation batteries (to accumulate energy locally), have the potential to open the energy-market to prosumer production. Smart meters could be used to account and register the micro-generated energy on a distributed ledger (becoming the equivalent of an ‘energy-coin’ system).
Self-generated electricity could normally be either consumed within the house, or accumulated in next-generation batteries for later use, or simply given back to the grid. Alternatively, thanks to the distributed and pervasive nature of the ledger, the produced energy could also be redeemed elsewhere, for example when charging an electric vehicle abroad; or sold through the ledger to the best buyer, according to a mechanism similar to that of a stock-exchange market.
2. Energy Contracts Ledger.
A consumer who intends to change energy supplier currently needs to close their contract with their current supplier, then open a new contract with a new supplier, and revisit the contractual conditions of all complementary energy services provided by third parties. Managing the administrative complexity of these operations is a real barrier to developing a competitive energy retail market, and is a source of cost for energy suppliers and distributors. Using distributed ledgers to record energy contracts online would greatly simplify these operations. It would allow consumers to finalise the transition from one supplier to another with just a few clicks on a computer or mobile device. Likewise, energy suppliers and energy service-providers would save resources otherwise devoted to these administrative operations.
There are still questions about the scalability, security and stability of such applications. However, the benefits are so promising that they certainly merit further investigation.